NEW YORK: US natural gas futures climbed over 2% to a 31-month high on Wednesday on forecasts for hotter weather over the next two weeks than earlier expected and soaring global gas prices that should keep US liquefied natural gas (LNG) exports near record highs. Front-month gas futures rose 8.5 cents, or 2.1%, to $4.112 per million British thermal units (mmBtu) at 9:35 a.m. EDT (1335 GMT), putting the contract on track for its highest close since December 2018.
Rising gas prices in recent months and a 7% drop in US crude futures so far this week helped to push the premium of oil over gas to its lowest since December 2020. Over the last several years, that premium has prompted US energy firms to focus most of their drilling activity on finding more oil instead of gas because crude was a more valuable commodity.
The oil-to-gas ratio, or the level at which oil trades compared with gas, fell to 17-to-1. That is below the 21 times oil has traded over gas so far in 2021 and compares with crude’s average premium of 19 times over gas in 2020 and a five-year average (2015-2019) of 20 times over gas. Crude, however, remains more valuable than gas. On an energy equivalent basis, oil should trade only six times over gas.
Data provider Refinitiv said gas output in the US Lower 48 states held at 91.6 billion cubic feet per day (bcfd) so far in August, the same as July. That compares with an all-time high of 95.4 bcfd in November 2019.
Refinitiv projected average gas demand, including exports, would rise from 90.9 bcfd this week to 94.5 bcfd next week as power generators burn more of the fuel to meet rising air conditioning use. The forecast for next week, however, was lower than Refinitiv predicted on Tuesday as high gas prices prompt some power generators to burn coal instead of gas. The amount of gas flowing to US LNG export plants slipped from an average of 10.8 bcfd in July to 10.4 bcfd so far in August due mostly to a reduction at Cameron LNG in Louisiana. That compares with a record 11.5 bcfd in April. With European and Asian gas trading near $15 per mmBtu, analysts said buyers around the world will keep purchasing all the LNG the United States can produce since the US fuel was selling for around $4. Earlier this week, prices at the Title Transfer Facility (TTF) in the Netherlands, the European benchmark, rose to their highest since hitting a record $14.94 in September 2008.
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